The misguided mayors of Vancouver and Montreal

The misguided mayors of Vancouver and Montreal

GWYN MORGAN

Special to The Globe and Mail

Published Sunday, Oct. 02, 2016 4:40PM EDT

Last updated Sunday, Oct. 02, 2016 4:47PM EDT

Vancouver Mayor Gregor Robertson is championing the goal of becoming “the world’s greenest city by 2020.” That sounds laudable, provided the path to that goal is rooted in sound science and economics rather than a religious belief in a carbon-free heaven.

The first step, narrowing already busy streets in favour of bike lanes, is infuriating drivers, while their gridlocked cars increase exhaust emissions. Now, Mr. Robertson has raised the stakes, going from “the world’s greenest city by 2020” to a “carbon-free city by 2050.” That means no fossil-fuelled vehicles, ships or, presumably, airplanes and replacing all natural-gas-fuelled heating and industrial processes with electricity. That would require an extremely costly retrofitting of houses, offices and other commercial buildings.

Then there are the operating costs. Even at today’s low electricity rates, the Canadian Taxpayers Association estimates that switching from natural gas would cost the average family $1,400 more a year, plus thousands to rip out and replace furnaces and water heaters.

And the source of all that additional electricity is to be, as Mr. Robertson envisions, wind and solar. We only have to look at Ontario, where contracts priced at multiples of existing rates enriched solar and wind power companies while driving that province from one of North America’s lowest electricity-cost jurisdictions to a job-killing highest.

It’s ironic that Vancouver City Council targets natural gas, by far the cleanest and lowest-emission fossil fuel as its first step toward carbon-free nirvana. But even if the people of Vancouver are forced down that path, what difference would it make to global emissions?

Here’s the simple calculation: Over the past 15 years, global carbon emissions have grown at the rate of 1,125 megatonnes a year, or 3.1 Mt a day. Vancouver’s natural gas emissions are 1.5 Mt a year. So global growth would overcome that tiny emissions reduction in less than half a day. This policy amply qualifies Mr. Robertson as charter member of the Canadian Misguided Mayors Club.

The search for other club candidates takes us to Montreal, where Mayor Denis Coderre has insisted that the Energy East oil pipeline be blocked from passing through Quebec, citing “environmental threats and too few environmental benefits.”

This is baffling for several reasons. First, construction of the pipeline is expected to increase Quebec’s gross domestic product by $3-billion, create 4,000 jobs and generate $700-million in annual tax revenue. Second, the pipeline would replace oil carried by tankers up the St. Lawrence to the Port of Montreal with oil carried by one of the world’s safest state-of-the-art pipelines. Third, Canadian oil delivered through the pipeline would eliminate Eastern Canada’s dependency on crude from such models of democracy and human rights as Algeria, Angola, Iran and Libya.

Given these facts, it’s astounding that Mr. Coderre shows up for those frantic demonstrations against Energy East. But there’s another factor that should have all Quebeckers very worried. The province will receive about $10-billion in 2016-17 under the federal equalization program. The equalization formula is quite complex, but it starts by averaging the per-capita fiscal capacity, which is closely related to GDP, of all 10 provinces. Those with a fiscal capacity below the average, the “have-not” provinces, receive equalization grants. The federal government relies upon the higher tax revenues from provinces with above-average fiscal capacity (“have” provinces) to help fund the grants.

In recent years, the only “have” provinces were British Columbia and the three oil producers Alberta, Saskatchewan and Newfoundland. But now, the “fiscal capacity” of those three provinces has dropped dramatically. Lack of pipeline access to world markets is forcing producers to sell their oil for about $15-billion per year below the world price. And without new pipeline capacity, capital investment has collapsed, throwing more than 100,000 people out of work. This sad reality means that the fiscal capacity of the oil-producing provinces is dropping dramatically and taking the 10 provinces’ average down with it.

While the latest calculation is yet to be revealed, it’s inevitable the average will be much closer to that of Quebec’s, reducing or eliminating their $10-billion grant. The full impact will be delayed because of the three-year rolling average feature of the equalization formula. But in a province with a debt/GDP already the highest of any other and about 2.5 times that of the most indebted American state, Mr. Coderre would be wise to become one of Energy East’s most ardent supporters.

Gwyn Morgan is the retired founder and CEO of Encana Corp. He has been a director of five global corporations.